Oil drops toward $59 on dollar, stock builds

Brent crude oil fell toward $59 a barrel as the dollar strengthened and a supply glut pushed global oil inventories to record highs.

The dollar hit a more than 11-year high against a basket of currencies after the United States (U.S.) unemployment rate in February fell to its lowest level since May 2008, making commodities priced in the greenback more expensive for holders of other currencies.

Oil inventories are rising across the world as production outstrips demand, offsetting tensions in the Middle East and the risk of output cuts in Libya and Iraq.

Brent LCOc1 was down 35 cents at $59.38 a barrel by 1130 GMT. The North Sea crude oil futures contract fell 4.6 percent last week in its biggest decline since the week ended January 9.

U.S. crude CLc1 was up 5 cents a barrel at $49.67. It closed down $1.15, ending a third week of declines.

“More and more investors are coming to the conclusion that the market is awash with oil,” said Carsten Fritsch, senior oil and commodities analyst at Commerzbank in Frankfurt. “Unprecedented stocks levels cannot be ignored forever.”

Goldman Sachs (GS.N) analysts argued in a note to clients that oil prices would reverse recent gains due to rising global inventories. They forecast U.S. crude would drop to around $40 a barrel.

Oil producers in the Organization of the Petroleum Exporting Countries (OPEC) have opted not to curb output, despite oversupply in many parts of the world, choosing to defend market share rather than try to support oil prices.

OPEC Secretary-General Abdullah al-Badri has said the group should not cut output to “subsidize” higher-cost shale oil, now being produced in large quantities in North America.

Oil prices fell by 60 percent between June 2014 and this January but recovered by almost a third between January and February on Middle East supply disruptions, strong winter demand and high refinery margins.

Fighting in several oil-rich countries has kept a lid on production and exports.

In Libya, up to 10 foreign workers are missing in the latest attack on oilfields by Islamist militants and there is a possibility they have been taken hostage, Czech and Libyan officials said on Saturday.